Remarks by Angel Gurría,
8 February 2017
(As prepared for delivery)
Dear Minister Andersson, Ambassador, Ladies and Gentlemen,
I am delighted to be back in Stockholm to present the OECD’s 2017 Economic Survey of Sweden. Let me begin by thanking the Ministry of Finance and Minister Andersson for hosting us today.
We are releasing this survey at a time when the global economy is still stumbling along at around 3%. Trade growth is even slower, while inflation remains below target in most OECD economies, despite central bank policy rates remaining near or even below zero. Most of the signs of the low-growth trap that we have been talking about for a long time are still there. As we discussed in our Global Strategy Group meeting last November, we are witnessing a backlash against globalisation, notably in a number of OECD countries. We are seeing rising income and wealth inequality, declining levels of trust, and the risk that ever more people will be left behind by digitalisation.
All countries urgently need to get around the table to chart the path towards fairer, more inclusive globalisation.
Few are better placed to set a positive example than Sweden.
Sweden weathered the global financial and economic crisis with limited damage. With GDP growing at a rate of over 3% in 2016 despite sluggish global demand, Sweden is outpacing major advanced economies, including Germany and the United States, as well as its Nordic neighbours.
Bucking the global trend, productivity has picked up. Unemployment is receding, and Sweden has a higher employment rate than any other EU Member State. Moreover, only 5% of total Swedish employment is in low-skilled jobs. This is an impressive performance!
Fiscal indicators are also improving, thanks to a responsible fiscal policy based on strong fiscal buffers and counter-cyclical policies that have helped the country weather the crisis years. As the economy recovered, the total deficit was reduced and the government budget is now showing a surplus. Together with low public debt, this leaves room for necessary investments, notably to facilitate the integration of refugees.
And inflation remains below 2%, despite a well-performing economy and expansionary monetary policy, although low interest rates have encouraged the build-up of debt – notably mortgage debt, to which I will return shortly.
These achievements were made possible by a competitive, innovative and diversified business sector, sound macro-economic policies and a range of reforms since the early 1990s. These allowed Sweden to adapt to an increasingly competitive and rapidly changing world economy, while preserving its welfare model. Add Sweden’s high levels of gender equality to the picture, and you see an inspiring model of inclusive growth!
In spite of this performance, Sweden is still facing some important challenges. Let me highlight four that I consider crucial.
First, there is evidence that Swedish housing market imbalances are creating financial and macroeconomic risks.
Recent macro-prudential measures, in particular the mortgage amortisation requirement, seem to have cooled the housing market. Even so, more may be needed to rein in housing demand, including a cap on household debt-to-income ratios, increasing property taxes, and phasing out mortgage interest deductibility.
Action to boost housing supply and ensure a more efficient use of the existing stock will also be necessary to ensure access to affordable housing. Streamlining land-use planning, taking into account economic, environmental and social considerations, and enhancing incentives for municipalities to allow construction would help alleviate housing shortages.
Strict rental regulations also discourage the supply of rental housing, resulting in decade-long rental queues in parts of Stockholm. They also create lock-in effects, which hamper mobility, especially for low-income households. Easing rental regulations, while maintaining tenant protection against abuse, would revitalise the rental market and support economic stability and competitiveness, while safeguarding inclusiveness.
This takes me to the second key challenge: improving equality.
Sweden is one of the most egalitarian nations in the world. Income inequality remains among the lowest in the OECD, but is now higher than in the other Nordic countries. It has increased significantly from a historical low in the early 1980s, partly stemming from structural factors, such as ageing, changing family structures and migration, but also as a result of fast-growing capital incomes, combined with slow increases in social benefits.
In order to avoid inequality from widening further, it would be desirable to examine more thoroughly, on an annual basis, the opportunity of raising social benefits, taking equity, fiscal costs and work incentives into consideration.
The third area where improvements can be made is related to education and skills, which can help boost both productivity and inclusiveness, a win-win proposition. The generally high skills of the Swedish workforce have allowed the creation of new qualified jobs. To sustain this trend going forward, education is key.
The latest PISA results show a significant improvement in the performance of 15-year old Swedes, after a long period of decline. The country’s resolute action to address challenges in education is bearing fruit.
Very few individuals with upper secondary or tertiary education are unemployed, but the low-skilled still struggle to find jobs. High labour market entry thresholds remain significant obstacles to hiring, particularly for low-skilled immigrants.
Improving procedures to obtain residence and work permits would, of course, help. But this is just the beginning. Wage subsidy schemes could also ease the problem, but have been little used. Simplifying such schemes could increase take-up and help get the disadvantaged into work. Foreign-born women’s labour participation is particularly low and active labour market policies are needed to facilitate employment and the integration of refugees in the labour market.
Last but not least, the challenge of gender equality. Sweden remains one of the most gender-equal countries in the world with high employment rates and good representation in government and parliament. However, gender wage differences persist, and women are under-represented on private company boards, and in senior management positions, as well as in many well-paid and influential professions and among entrepreneurs.
Further incentives to better split parental leave between parents and policies to fight stereotypes in education and support women entrepreneurs could address these gaps. Special attention should also be paid to the integration of foreign-born women, who are particularly lagging behind.
Ladies and Gentlemen,
Sweden’s economic achievements are impressive. Nevertheless, keeping momentum and implementing further change is always challenging. Sweden has the determination and the reform state of mind to prevail. As the great Swede August Strindberg once said: “I find the joy of my life in the battles of life”.
The OECD stands ready to support the Swedish government in its unceasing effort to deliver better, more inclusive, more sustainable policies, for better lives.